Markets for financial innovation

• 成果类型: Article
• 署名作者: Babus, Ana; Hachem, Kinda
• 署名单位: Washington University (WUSTL); University of Virginia; National Bureau of Economic Research
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105615
• 发表日期: 2023
• 关键词: Security design; market structure; market power

摘要

We develop a theory of financial innovation in which both market structure and the payoffs of the claims being traded are determined endogenously. Intermediaries use the cash flows of an underlying asset to design securities for investors. Demand for securities arises as investors choose markets then trade using strategies represented by quantity-price schedules. We show that intermediaries create increasingly riskier asset-backed securities when facing deeper markets in which investors trade more competitively. In turn, investors elicit less risky securities when they choose thinner markets, revealing a novel role for market fragmentation in the creation of safer securities.(c) 2023 Elsevier Inc. All rights reserved.